Current Yield

Why Muni Holders Should Worry

Assault on current tax-exemption status fits in with both presidential candidates' tax proposals.

So far, 2012 has been a delightfully placid year for municipal bonds. The broader muni market has gained a respectable 6.3%, with the riskier high-yield sector returning a stellar 15.3%. Muni mutual and exchange-traded funds have recorded 25 straight weeks of net inflows and just one week of net outflows this calendar year. Outside of a few cities in California, defaults remain rare.

Here now to try to spoil all of this stability we present an election and a fiscal cliff. The latter is the bigger challenge, but so much of...